President Obama recently took a break from the all-consuming debate about raising the federal debt limit to announce that federal regulators, the state of California, and 13 vehicle manufacturers had agreed on a proposal for more stringent fuel economy and greenhouse gas (GHG) emissions standards for cars and light trucks. Under the agreement, which covers model year (MY) 2017-25 vehicles, industry average light-vehicle fuel economy will rise from 35.5mpg in MY 2016 to 54.5mpg by MY 2025.
The agreement is a compromise. The Obama Administration initially weighed options ranging from a 3% annual corporate average fuel economy (CAFE) increase to 46.8mpg by MY 2025, to a 6% annual increase to 62.1mpg. While environmental groups loved the 6% proposal, the automotive industry objected strenuously. The White House hinted that it was open to a 5% increase to 56.2mpg and, in the end, the parties agreed to a two-tiered approach: the CAFE standard for cars will rise 5% per year, but the light-truck standard will increase 3.5% annually through MY 2021 before rising 5% annually for the next four years. The slower rate of increase for light trucks was warmly received by vehicle manufacturers – including the Detroit Three – with a wide range of pickups and SUVs in their model mix. The Administration also agreed to industry requests for a mid-term review to determine whether the rules should be adjusted for MY 2022-25.
In the end, the parties agreed to a two-tiered approach: the CAFE standard for cars will rise 5% per year, but the light-truck standard will increase 3.5% annually through MY 2021 before rising 5% annually for the next four years.
California’s participation in the agreement means that vehicle manufacturers will have to comply with only one nationwide set of standards – a key selling point for the automotive industry. Without the accord, California could have implemented its own emissions rules, and other states could have adopted the California or federal standards.
The White House has highlighted the headline fuel-economy number of 54.5mpg, but actual improvements will depend on the detailed regulation (or ‘rule’). A notice released last week by federal regulators indicated that a number of credits and incentives would help vehicle manufacturers meet the new standards. These include ‘off-cycle credits’ for stop-start and other technologies not properly recognised in current test procedures; special treatment for electric, plug-in hybrid, fuel cell, and CNG vehicles; incentives for ‘game-changing’ technologies that make full-size pickups more fuel-efficient; and credits for air-conditioning improvements that reduce GHG emissions and improve vehicle efficiency.
Based on the outline released last week, however, compliance with these new standards would drive significant improvements in the fuel efficiency of cars and light trucks sold in the US, with resulting cuts in carbon emissions, over the next 15 years.
The process for reaching this agreement was remarkably cooperative, much like the process for writing the fuel consumption and GHG emissions rules for medium- and heavy-duty vehicles that will be finalised in the coming days. In both cases, the Obama Administration approached industry and environmental groups early in the proposal process and took their concerns into account.
The latest agreement has generally been well received by the automotive industry, environmental groups, and the autoworkers union. The devil is in the details, of course, and these will not be known until a proposed rule is released in September. The proposal could face political challenges on Capitol Hill, and will be the subject of a comment period before being finalised by July 2012. Based on the so-called CAFE 2025 outline, however, compliance with these new standards would drive significant improvements in the fuel efficiency of cars and light trucks sold in the US, with resulting cuts in carbon emissions, over the next 15 years.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Ian C. Graig, chief executive of Global Policy Group, Inc., has written in the past in AutomotiveWorld.com on a wide variety of US policy trends and their implications for the automotive industry. Global Policy Group is a Washington-based research and government relations consultancy whose clients include leading US, European, and Japanese firms in the automotive, energy, utility, information technology, and financial services sectors. For more information, visit www.globalpolicy.com or contact Ian Graig directly at ian.graig@globalpolicy.com.
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